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Can FX NDFs still deliver?

While the FX non-deliverable forward (NDF) market has demonstrated its resilience in the face of a spike in spreads during the early stages of coronavirus, there are concerns over its capacity to destabilize onshore markets in emerging economies.


Foreign exchange non-deliverable forward (NDF) markets developed because of currency non-deliverability offshore and restrictions in onshore markets, particularly for non-residents.

Restrictions exist in many emerging markets and take various forms, including underlying asset requirements for currency positions, restrictions on participants in currency markets, prudential and documentation requirements, and regulation on permissible FX products.

Restrictions such as these are designed to safeguard financial stability, curb financial speculation and maintain control over currency onshore.

However, when the Global Foreign Exchange Committee (GFXC) met in September to discuss trading conditions, one of the issues it discussed was currency controls causing pricing disruptions in NDF markets.

Market players see great opportunities for taking NDF trading to the next level
Yue Malan, Aite Group

Asia is home to most of the heavily traded NDF currencies, including the Korean won, Indian rupee and Taiwan dollar, as well as the Indonesian rupiah and Chinese yuan.

Korea and Taiwan have imposed relatively few restrictions on onshore financial institutions’ participation in the NDF market, whereas Malaysia has taken a much stronger policy approach aimed at limiting ringgit trading to onshore markets.


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